The relationship between the regulated and the unregulated parts of finance is not that between night and day, where the one is the obverse of the other. The RBI’s regulation is more like a tourniquet tied too long: it staunches the bleeding, all right, but it also cuts off blood supply to another part of the body, killing tissue and nerve.

Saradha and similar outfits exist because the vast majority of Indians do not have access to formal finance. The present government has made financial inclusion a major part of its agenda, stepping up financial connectivity to 2,11,224 villages, creating over 1.5 lakh banking correspondents and over three crore kisan credit cards, and bringing up the number of bank accounts to 17 crore. Read More